Do You Have a Case Against Your Stock Broker? Ten ways to Tell

Do You Have a Case Against Your Stock Broker? Ten ways to Tell


As an attorney who represents individual investors from around the Country in claims against their stock brokers, I hear a wide variety of complaints about brokers’ fraud and misconduct. If you believe that your broker has abused or harmed you, you may want to consider whether your complaint falls within any of the following typical complaint categories. If you fall into one of these categories, you may have a meritorious complaint against your broker.

Here are some guidelines to consider whether or not you have a case:

1- Unsuitable Investments – If you tell your broker that you are a “conservative” investor with a “low” risk tolerance and you are put into, for example, risky high technology stocks.

2- Unauthorized Trades –If you notice that buys and sells are occurring in your account without your prior permission or knowledge or any contact from your broker, these trades are “unauthorized”.

3- Risk Profile Change – If you notice that the ”investment objective” or “risk profile” (“aggressive” “moderate” or “conservative”) on your monthly account statements has changed, without your input, from, for example, “moderate” to “aggressive”. A “red flag” should go up if you receive documents from your broker which do not reflect your investment objective (aggressive, moderate, conservative).

4- Fraudulent Stock Research – If you bought stocks relying on stock research which was determined by the SEC and New York Attorney General to be “fraudulent” (Infospace, ICGE, WorldCom, etc).

5- Churning – If your broker is excessively trading or constantly turning over your account, for the purpose of generating sales commissions.

6- Fraudulent Statement of Risk – If you have suffered substantial losses in your account and your broker told you that you had a “low risk” portfolio.

7- Over-concentration- If your account is over-concentrated in stocks and equity mutual funds which are primarily high technology or telecommunications, you have an over-concentrated portfolio. If your broker has not allocated your assets into different classes (stocks, bonds, cash) or diversified your stocks and equity mutual funds into different industry “sectors”.

8- Excessive Use of “Margin” – If your broker buys stock with “margin” borrowings which you did not authorize.

9- “Activity” Letters – If your brokerage firm sends you an “activity” letter advising you of large losses, turnover, high commissions, high margin levels, etc. in your account and this is not consistent with your instructions to the broker.

10- Mutual Fund “Switching” – If your broker advises you to get out of one mutual fund or “variable annuity” and into another. Often brokers are “pushing” mutual funds which are “proprietary” and which may give the broker higher compensation and are not necessarily in the client’s best interest.

About The Author

Jacob H. Zamansky specializes in securities arbitration and has over twenty-six years of litigation experience at private law firms and as a federal prosecutor (FTC). He has been recognized by the press as a "big-time" litigator and legal strategist. As a frequent commentator and "source" on CNBC, CNN, National Network News and FOX Business News, He has been quoted for publication in virtually every financial and legal publication including The Wall Street Journal, New York Times, Money Magazine, The New Yorker, Business Week and Fortune Magazine.

jake@zamansky.com